A Progress Report on China’s Green Finance Pilot Zones
China’s Green Finance Pilot Zones provide a good map of the future of green finance.
China’s Green Finance Pilot Zones provide a good map of the future of green finance.
If you want to know where the future of green finance is headed, a good place to look is at China’s Green Finance Pilot Zones. First created in 2017, these pilot zones—in Guangdong, Guizhou, Jiangxi, Xinjiang, and Zhejiang—are experimenting with local green finance solutions which, if successful, can be scaled nationally and even globally. Below are a few noteworthy developments.
In an effort to systematically approach the further development of the green finance zones with the aim of scaling these experiences, the People’s Bank of China (PBOC) introduced a joint meeting mechanism to build working-level rapport and encourage a healthy exchange amongst the relevant stakeholders including provincial finance ministries and pilot zone senior management. The first meeting was held in July 2019, and it instituted two working groups to conduct evaluations and to take stock of progress in each pilot zone and established that members would meet quarterly.
The newest addition to the green finance pilot zone roster is Lanzhou, capital of Gansu Province in the west of China. It was officially announced in December 2019, and, as of July 2020, the province released an action plan for the zone. There are nine specific focus areas of the new zone ranging from developing green insurance to improving green finance information accessibility.
In Huzhou, the green finance and fintech nexus has advanced the furthest. The first green finance information system in the country was developed in Huzhou to provide real-time data collection, environmental benefits analysis, green credit performance evaluation, and data sharing services. Another product developed in the city aimed at alleviating information asymmetry issues is the Green Credit Platform that has assisted over 17,000 enterprises obtain more than 187 billion yuan in financing as of July 2020. Huzhou’s green finance numbers are also quite reflective of its progress with a green loan balance nearly 140 billion yuan representing a more than 50% year-on-year increase and accounting for almost 25% of total loans, much higher than China’s 10% average. And in March this year, another pilot was announced in Huzhou as the first and only pilot in the country that is focused on coordinating the development of green finance and green buildings.
Guangzhou’s total green loan balance exceeded 342 billion yuan, cumulative green debt issuance reached 63.8 billion yuan, and cumulative green insurance premium income reached 48.8 billion yuan in 2019. These figures rank first among data collected for all the pilot zones. In addition, Guangzhou has a robust carbon pilot trading market, the first green project financing integration system, and real momentum in coordinating efforts to stand up green finance in the Guangdong-Hong Kong-Macao Greater Bay Area. This includes a joint policy release by the PBOC, China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE) promising financial support for developing the area, and the launch of the Guangdong-Hong Kong-Macau Greater Bay Area Green Finance Alliance.
The progress around green finance zones does not stop there. In fact, fostering the development of green finance pilot zones in China will likely continue with Beijing, Chengdu, Chongqing, Shenzhen, and Shanghai in line to be the next top contenders for the distinction. Each city has been undertaking various green finance initiatives already to build its credentials.
Fostering the development of green finance pilot zones in China will likely continue with Beijing, Chengdu, Chongqing, Shenzhen, and Shanghai in line to be the next top contenders for the distinction.
For instance, Shenzhen is the first municipal government to issue a local legislation with legal authority promoting green finance development for public comment and plans to construct a green finance trading platform for solid waste disposal in response to China’s “waste-free cities” campaign . Beijing is building an international green finance center and transforming its local carbon exchange to become China’s first green asset exchange. In Shanghai, the municipal government with the Ministry of Finance and the Ministry of Ecology and Environment launched a $12.7 billion national green investment fund to promote ecological protection and green development.
And in terms of promising green finance development at a regional level, the Yangtze River Delta is another important area that China is keen to engage. There are plans to develop a cross-province green finance zone that draws in Qingpu in Shanghai, Wujiang in Suzhou, which are both in Jiangsu Province and Jiashan in Zhejiang Province.
Green finance pilot zones—old and new—show promise for financing green sustainable development with the potential to scale nationally. The aggregate of the work in all the pilots are providing much needed data to help guide policy development and the experiences gained in the pilots are instrumental as well. The innovation and success stories that are emerging from the green finance zones are valuable and strategic to China’s green development broadly as it strives to remain on target with its environmental protection goals.
The initial tranche of green finance pilot zones was covered previously in this blog .